Why Gold Rate in Indian cities are different?

Gold rate in the Indian market is decided by International market. Ideally gold rates should remain same across the country. However, gold rates in Indian cities differ from each other. Gold price in Mumbai is different than Delhi or Chennai. Some cities offer gold at lower rate compare to other. Reasons for why Gold Rate in Indian cities is different is given below.

Reason for Gold Rate Difference –

Transportation Cost –

Transportation cost plays an important role in determining the gold price. Physical movement of gold from one place to another place requires suitable security arrangement. Spending on this will increase a price of gold.

Volume Play –

Big volume players in the big cities can offer a discount on bulk buying. This could lead to price variation. It is sometimes observed that price of gold in Mumbai is lower compared to other cities. This may be due to this.

Gold Associations –

Local gold associations also play a major role in determining a local gold price. In big cities like Mumbai, Delhi, Chennai price of gold is fixed by this gold association. For Mumbai “Bombay Bullion Association Ltd” decided the price of gold. They act as a union and decide a local gold price. Fixing of gold price happens twice a day. This could be the reason of variation in gold price across cities.

Purchase Price –

The jeweler may have purchased gold long time back where a gold price was low and now he is selling gold which is equivalent to international gold rates.

However, this price variation will be very small. You can track gold rate in India from here.

How gold price are determined in India?

Ideally gold rate depends on the international gold rate. However, it depends on additional factors like import duty, dollar price variation etc.

Largest producer of gold is outside India and in order to import gold we need to pay dollar-rupee conversion price. If rupee falls against the dollar the landing cost of gold increases and gold become expensive.

Second important point is import duty. In order to control current account deficit government increases import duty. This makes gold further costlier.

Gold Price History

In order to compare gold price with international market let’s look at last 42 years history of the gold price. This chart is taken from Gold Price history data of RBI.

Last column shown as a spread is the difference between any two prices. In this case spread is the difference between Price of gold in Rupees in Mumbai and price of gold in Rupees in London.

Gold Price India History

From the above table, you can clearly say that Price in the international market is different than the price in a local market.

Gold is yellow shining metal is losing its shine.Recently we have seen sharp fall in gold price. Gold became one of the biggest non-performing assets in last two years. Gold price have come down to 24000 Rs from 35000 Rs. Analyst are expecting the gold price to fall further.

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